Billions lost in Defence black hole

By Katharine Murphy, Canberra

December 27, 2006 — 11.00am

DAYS after the Defence Department launched an inquiry into fears that criminals have gained access to army shoulder-fired rocket launchers, the Auditor-General has found it cannot adequately account for inventory and "repairable items" worth $3.9 billion.

An annual investigation of government agencies by the Australian National Audit Office concludes that Defence has breached federal financial management controls.

The audit office found the DMO had opened and operated foreign bank accounts without official approval and had "inadvertently" allowed one such account to go into the red.

The DMO had also "artificially fixed" the exchange rate when buying equipment for Australian troops overseas, a practice that caused the value of projects to be "misstated".

The value of one such project, the Australian light armoured vehicle capability, was overstated by $23 million.

The project was subsequently transferred from the DMO back to the Defence Department. The practice has since ceased.

The ongoing problems with Defence accounts follow two recent controversies involving the possible theft of specialist military equipment.

Defence Minister Brendan Nelson last week called in ASIO and the secretive Defence Security Authority to carry out a security audit, after concerns that criminals may have gained access to shoulder-fired 66-millimetre rocket launchers from army stores.

The audit office's conclusions on defence accounts are contained in its yearly review of the financial statements of government businesses and agencies, which was released just before Christmas.

The auditor says Defence has made some important improvements in its record-keeping and accountability during the past year.

But the audit office warns that despite recent improvement, which has seen Defence accounts cleared as "true and fair" apart from the inventories of general and repairable items, there is still much that should be done.

"Notwithstanding the significant reduction in uncertainty over some Defence balances in 2005-06, there remains significant uncertainty in relation to the two material line items within the Defence financial statements," it says.

The audit office says Defence will need to maintain its current commitment to improving accountability in order to secure a clean bill of health.